SAC Clients Said to Pull $1.68 Billion Amid Insider Probe

SAC Capital Advisors LP’s clients
pulled $1.68 billion from the hedge fund as Steven A. Cohen’s
firm is being investigated for alleged insider trading, according
to a person familiar with the matter.

The hedge fund had more than $15 billion in assets under
management at the start of the year, said the person, asking not
to be named because the information is private. SAC told some
employees and advisors last month it expected client redemptions
of at least $1 billion.

Clients account for about 40 percent of SAC’s assets under
management and the rest is from Cohen and his employees. SAC
this week reached a deal with Blackstone Group LP that gives all
clients three more months to decide whether to stay in the fund.

The hedge fund was told by the U.S. Securities and Exchange
Commission in November that the agency is considering pursuing
civil fraud claims against it, related to alleged insider
trading in two drugmakers by former portfolio manager Mathew Martoma. Blackstone, one of the biggest investors in SAC, with
about $550 million in the fund, will leave most of the money in
place for at least another quarter under the new liquidity
agreement, it said yesterday in a statement.

The new terms give SAC investors time to see if the fund
and its billionaire founder are charged as part of a multiyear
government probe that has already linked at least eight current
or former employees to allegations of insider trading at the
firm.

New Terms

Clients faced a deadline of yesterday to tell SAC, which is
based in Stamford, Connecticut, if they wanted to start the
process of withdrawing all their money by the end of the year.
Under existing rules, they could redeem 25 percent of their
assets from the firm each quarter.

Now, SAC is telling investors they can wait until mid-May
to make the decision. At that time, they can redeem a third of
their money each in the second, third and fourth quarters.

“While we submitted redemptions for certain accounts as
appropriate, BAAM successfully preserved flexibility for our
clients by extending our decision time line,” Peter Rose, a
spokesman for New York-based Blackstone, said in the statement.
BAAM is the firm’s hedge-fund unit, Blackstone Alternative Asset
Management.

Blackstone negotiated the new terms with the hedge fund
over the past week, said people familiar with SAC, who asked not
to be named because the firm is private. SAC obtained board
approval within two days of the redemption deadline, they said.

Martoma Case

The allegations against Martoma marked the first time
prosecutors linked Cohen to trades at the center of an insider
case. Blackstone and other SAC investors are awaiting more news
on the criminal case against Martoma, who was arrested on Nov.
20 for playing a key role in what prosecutors called a record-
setting insider-trading scheme that netted as much as $276
million in profits and averted losses.

Martoma, 38, who worked at SAC’s CR Intrinsic unit,
discussed two drug stocks with Cohen in 2008, advising him to
sell shares before bad news about a drug’s prospects was
announced, according to the government, which referred to the
“hedge-fund owner” in court papers. The five-year statute of
limitations covering trading in the shares expires at the end of
July. Martoma pleaded not guilty to illegal trading at a court
hearing in New York last month. Cohen, 56, hasn’t been accused
of any wrongdoing.

“We will use this period of time to evaluate all
additional information which becomes available,” said
Blackstone’s Rose.

Protecting Clients

Jonathan Gasthalter, a spokesman for SAC, yesterday
declined to comment on the new liquidity option. He has
previously said that Cohen is confident he has acted
appropriately and that SAC continues to cooperate with the
government’s inquiry.

Cohen agreed not to pull his money, and the firm updated
its fund documents to say it would indemnify clients against
disgorgement of illegal profits and legal fees, the people said.

SAC’s main fund returned 2.5 percent in January, after
climbing 13 percent last year. SAC has produced average annual
gains of about 25 percent since its 1992 inception.

Among the clients saying they would withdraw money are
Citigroup Inc.’s private bank, which has about $187 million with
the hedge fund, and Societe Generale SA’s Lyxor Asset Management
unit.